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Sina needs precise marketing in bid to lure advertisers
By Alan Hellawell and Alex Yao |
April 1, 2013, Monday
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SINA Weibo has recently revealed pricing for its in-stream advertising product Fen Si Tong, or connecting the followers, which it launched in the fourth quarter of 2012.
Sina offers two types of pricing models for Fen Si Tong: CPM, cost per thousand impressions, and CPE, cost per engagement. Sina Weibo will charge advertisers a CPM of 5 yuan (US$0.8), or a CPE of a base price 0.5 yuan as well as 0.1 yuan per incremental bid.
For the time being (and with the notable exception of Baidu), China's advertising revenue is primarily driven by large brand advertisers, as remains the case with Sina.
iResearch has outlined the "80/20 rule" in China's advertising market by which the top 20 percent advertisers generated roughly 93 percent of advertising revenue in 2012.
Advertisers that spent over 100 million yuan on advertising in 2012 only represented 0.2 percent of total advertisers, while they contributed roughly 29 percent of overall advertising in 2012, up 4 percentage points year-on-year.
In spite of this, we note that the advertising budgets from small advertisers are also growing quickly.
According to iResearch, small advertisers (each with an annual advertising budget below 1 million yuan) represented about 88 percent of total advertisers in 2012, but increased their contribution to total advertisement spending from around 13 percent in 2011 to around 23 percent in 2012.
We see great advertising potential among these small advertisers.
So far, Sina has not expanded this new type of advertising format particularly aggressively.
Our channel checks have revealed that the frequency of the promoted newsfeed advertisements - usually in the form of a tweet posted under an account that a user doesn't follow - in a user's news stream is still quite low.
As suggested by Sina's management team in the company's fourth quarter earnings call, Sina has to strike a balance between advertising and a Weibo user's experience.
After all, these abrupt newsfeeds will to some extent harm the browsing experience when a user is receiving the information from his or her followed accounts.
Measured fashion
We believe Sina is likely to roll out this new advertising format in a measured fashion. In the short term, we do not expect Fen Si Tong to contribute significant advertising revenue to the company.
A way out of the dilemma is to use targeted advertising instead of forced push. We believe precise marketing could serve as a feasible way to step out of the dilemma between advertising and user experience.
Sina Weibo has accumulated meaningful interest graphs of a large number of users, which can be leveraged in analyzing the advertising-related interests from these users.
As such, advertisers are able to roll out newsfeeds to users who are more likely to have interest in their contents.
We believe this method could: 1) reduce the interference on user experience to a minimum level, and 2) clearly prevent waste in advertising resources (such as avoiding the promotion of women-specific products to male users) and thus improve advertising results.
We believe these benefits will finally add to Sina's bargaining power on advertisement pricing.
In the long run, this new advertising attempt is likely to become an important driver to Sina's revenue.
Alan Hellawell and Alex Yao are research analysts with Deutsche Bank AG in Hong Kong. The story is adapted from a research report issued by the bank on March 25. The opinions expressed are their own.
Sina offers two types of pricing models for Fen Si Tong: CPM, cost per thousand impressions, and CPE, cost per engagement. Sina Weibo will charge advertisers a CPM of 5 yuan (US$0.8), or a CPE of a base price 0.5 yuan as well as 0.1 yuan per incremental bid.
For the time being (and with the notable exception of Baidu), China's advertising revenue is primarily driven by large brand advertisers, as remains the case with Sina.
iResearch has outlined the "80/20 rule" in China's advertising market by which the top 20 percent advertisers generated roughly 93 percent of advertising revenue in 2012.
Advertisers that spent over 100 million yuan on advertising in 2012 only represented 0.2 percent of total advertisers, while they contributed roughly 29 percent of overall advertising in 2012, up 4 percentage points year-on-year.
In spite of this, we note that the advertising budgets from small advertisers are also growing quickly.
According to iResearch, small advertisers (each with an annual advertising budget below 1 million yuan) represented about 88 percent of total advertisers in 2012, but increased their contribution to total advertisement spending from around 13 percent in 2011 to around 23 percent in 2012.
We see great advertising potential among these small advertisers.
So far, Sina has not expanded this new type of advertising format particularly aggressively.
Our channel checks have revealed that the frequency of the promoted newsfeed advertisements - usually in the form of a tweet posted under an account that a user doesn't follow - in a user's news stream is still quite low.
As suggested by Sina's management team in the company's fourth quarter earnings call, Sina has to strike a balance between advertising and a Weibo user's experience.
After all, these abrupt newsfeeds will to some extent harm the browsing experience when a user is receiving the information from his or her followed accounts.
Measured fashion
We believe Sina is likely to roll out this new advertising format in a measured fashion. In the short term, we do not expect Fen Si Tong to contribute significant advertising revenue to the company.
A way out of the dilemma is to use targeted advertising instead of forced push. We believe precise marketing could serve as a feasible way to step out of the dilemma between advertising and user experience.
Sina Weibo has accumulated meaningful interest graphs of a large number of users, which can be leveraged in analyzing the advertising-related interests from these users.
As such, advertisers are able to roll out newsfeeds to users who are more likely to have interest in their contents.
We believe this method could: 1) reduce the interference on user experience to a minimum level, and 2) clearly prevent waste in advertising resources (such as avoiding the promotion of women-specific products to male users) and thus improve advertising results.
We believe these benefits will finally add to Sina's bargaining power on advertisement pricing.
In the long run, this new advertising attempt is likely to become an important driver to Sina's revenue.
Alan Hellawell and Alex Yao are research analysts with Deutsche Bank AG in Hong Kong. The story is adapted from a research report issued by the bank on March 25. The opinions expressed are their own.
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